NPV Problems

1) The Heritage Amusement Park would like to construct a new ride called the Sonic Boom, which the park management feels would be very popular. The ride would cost $450,000 to construct, and it would have a 10% salvage value at the end of its 15-year useful life. The company estimates that the following annual costs and revenues would be associated with the ride: (Ignore income taxes.)
Compute the pay back period associated with the new ride

2) Sharp Company has $15,000 to invest. The company is trying to decide between two alternative uses of the funds as follows:

Invest in Invest in
Project A Project B
Investment required $ 15,000 $ 15,000
Annual cash inflows $ 4,000 $ 0
Single cash inflow at the end of 10 years $ 60,000
Life of the project 10 years 10 years

a. Determine the net present value. (Negative amounts should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answers to the nearest whole dollar.)

3) Wriston Company has $300,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are as follows:

The working capital needed for project B will be released for investment elsewhere at the end of seven years. Wriston Company uses a 20% discount rate. (Ignore income taxes.)

Required:

a. Calculate net present value for each project. (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answers to the nearest whole dollar.)

4) On January 2, Fred Critchfield paid $18,000 for 900 shares of the common stock of Acme Company. Mr. Critchfield received an $0.80 per share dividend on the stock at the end of each year for four years. At the end of four years, he sold the stock for $22,500. Mr. Critchfield has a goal of earning a minimum return of 12% on all of his investments. (Ignore income taxes.)

Required:
a. Determine the net present value. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answer to the nearest whole dollar.)

Related Solutions

Which of the following statements is incorrect?
a. Assuming a project has normal cash flows, the NPV will be positive if the IRR is less than the cost of capital.
b. If the multiple IRR problem does not exist, any independent project acceptable by the NPV method will also be acceptable by the IRR method.
c. If IRR = k

You have estimated 3 possible NPV outcomes for an investment under analysis, the expected NPV, the best case NPV and the worst case NPV. You have also gotten estimates from management on the probability of each of these three cases. What do you need to do to find the expected NPV for the investment?

You have been asked by a manager in your organization to put together a training program explaining Net Present Value (NPV) and Future Value (FV) and how they are used to evaluate the price of stock. You have been given the following objectives:
Upon completing your Net Present Value (NPV) and Future Value (FV) Training Progr

Troy Fin 3332 Semester Project
The Project is to be completed off line but answered utilizing the quiz format.
Online course contains questions matching those on the various sheets in this workbook.
Workbooks/ spreadsheets are not to be e-mailed, unless requested.
Click on each worksheet below.

A project that costs 3,000 will provide annual cash flows of $800 for each of the next 6 years. Is this project worth pursuing if the discount rate is 10%? How high can the discount rate be before you reject the project?

Huang Industries is considering a proposed project for its capital budget. The company estimates that the project's NPV is $12 million. This estimate assumes that the economy and market conditions will be average over the next few years. The company's CFO, however, forecasts that there is only a 50 percent chance that the eco